Module 6 Concept of Present Value

Question 1

The sum of money borrowed or lent is called?

Answer 1

The Principal (also known as the ‘capital’ amount)

Question 2

What is simple interest?

Answer 2

Interest is earned on each period but only on the original principal

Question 3

What is compound interest?

Answer 3

Interest is paid on the principal plus the accumulated principal

Question 4

Does the Effective annual rate of interest increase or decrease as the number of periods of compounding interest increases?

Answer 4

Increases